Intervening or not, that is the question for states around the Channel

5 novembre 2013

For some anti-state activists, states have just one single function: interfering on free markets and charging unnecessary taxes. Yet, successive economic crisis revealed a new kind of central power: a “smart government”. Contrary to popular opinion, the United Kingdom and France have a pretty close structure of central power. This article offers to compare how the state, in these two countries, went back into the economic sector, in particular by the control of the biggest firms, and how this influence goes on.

A questioned theoretical model of interventionism

Under the influence of liberalism, direct intervention of the central power decreased. Such a decrease can be characterized through two phenomena. First, one can easily notice that after the World War II, the economic control held by states has been clearly reduced, though British and French economies both renew with growth thanks to public action. Notwithstanding the latter idea, privatizations occurred in both countries even though it occurred earlier in the United Kingdom. Such a difference of timing is easily understandable when one considers the British classic idea following which pure and perfect competition between private operators can lead the latter to adopt an optimal economic behavior and rectify market failures. On the other hand, in France, it used to be agreed that such a situation could be also reached thanks to public action. In any event, as a consequence of privatizations, both governments were partly deprived of their capacity of intervention.

Secondly, the latter capacity was concurrently reduced through the use of soft law, such a use being notably characterized by the creation of independent regulatory agencies (AAI in France and “ofdogs” in the United Kingdom). Indeed, the fact that those agencies offer an indirect intervention combined with the diversity of the methods used weakened their power and led markets to self-management. However, soft law also has the advantage to offer a better flexibility to economic operators than traditional sources of law and, consequently, was one of the solutions adopted by French and British governments as a way out to the current crisis.

“State is back”

As a consequence of the current economic crisis, governments in Paris and London have not hesitated touse former abandoned levers. Firstly, they intervened in order to bail out banks and companies facing economic difficulties. They went further with the acquisition of shares in private companies and even with nationalization in the United Kingdom (for instance, the Royal Bank of Scotland). It must be noticed that, in France, the government relatively disregarded the British solution and opted for the granting of loans to private operators.

Secondly, regulation truly evolved in order to complete judicial control: while the latter is designed to intervene at a later stage, the former allows a prior control on companies’ behavior. Moreover, the agencies’ power of sanction was strengthened by the executives (especially for the agencies regulating financial activities, AMF in France and FSA in the United Kingdom). One instance of this reinforcement is the power to control CEO’s and other directors’ remuneration.

Finally, France and the United Kingdom both used taxation in order to restore public accounts on one hand, and allow big companies to find growth again thanks to financial aids, one the other hand. Here, the observer might be relatively surprised when one considers the traditional aversion of the European Union for public aids. However, such aids are considered to be more than useful having regard to the current crisis’ magnitude.

As a conclusion, it is worth noticing that controlling and stimulating economic operators’ dynamism is certainly one of the most difficult tasks, which should consequently fall to states. While France and the United Kingdom may have adopted relatively different solutions in the past, one cannot deny that a convergence occurred during the current crisis. In other words, both governments converged meanwhile they returned to their island of state classical conceptions … as best enemies!

Erwann LAPERDRIX

Further reading:

· B. CLINTON. Back to work, Why We Need Smart Government for a Strong Economy, Odile Jacob, 2011